Radical restructuring proposals – reform with caution

Main points

Proposals likely to benefit large company restructuring but less likely to support SME restructures.

UK court system not set up to deal with accessibility and commercial decision making required.

Moratoriums should be supervised by insolvency practitioners.

The ICAS response to the Insolvency Service consultation on reform to the Corporate Insolvency Framework issues a note of caution over the potential impact on SME businesses.

In May the UK Insolvency Service issued a consultation ‘A Review of the corporate insolvency framework’ which proposed some radical reforms to the UK restructuring regime. The Government proposals looked at four broad areas for reform to improve the efficiency of the rescue and restructuring tools available to companies in the UK (access previous article).

In responding to the consultation, ICAS has issued a cautious welcome to the proposals, although has highlighted that many of the proposals could have a detrimental effect on the availability and cost of finance to SME businesses. Further discussion with the UK banks and other lenders is required to fully understand the potential implications.

In reaffirming the approach that a vibrant economy that supports economic growth should ensure businesses which suffer financial distress through factors largely outwith their control and which would otherwise be viable deserve an opportunity to be restructured, the response also highlights that the preservation of business may not be paramount in every situation.

ICAS has pointed out that further discussion will be required with stakeholders to ensure that the detail behind any of the proposals to be taken forward do not result in unintended consequences and will deal with the many practical concerns which are raised in our detailed comments, especially in relation to essential supplies.

The response also highlights that the proposed reforms rely heavily on an already overburdened court system and that unlike many other countries the UK does not have specialist insolvency courts. The proposals would require the court system to be accessible, quick to react and with sufficient skills, knowledge and experience in insolvency, commercial, and employment law, amongst other areas, to be effective.

The proposals are most likely to be of benefit to companies backed by large syndicated lending facilities. Conversely, SME companies are perhaps unlikely to benefit from the proposals.

The proposals suggest that any moratorium could be supervised by accountants, solicitors or insolvency practitioners. It is essential that any process which involves corporate restructuring or insolvency retains confidence of the relevant stakeholders. This relies on skilled and knowledgeable professionals who are appropriately trained and qualified to deal with such matters and backed up by a robust regulatory system. We therefore believe that any new restructuring regimes must be supervised only by insolvency practitioners as any extension more generally will result in additional and increased regulatory burden.